The decline in economic activity in the Seventh District leveled off in July and August. Contacts generally agreed that activity had stabilized at a low level, and were cautiously optimistic for a recovery over the remainder 2009. Overall, consumer spending increased from the previous reporting period, and the decline in business spending slowed. Manufacturing and construction remained at low levels, although both sectors showed signs of improvement. The pace of job loss slowed, and credit conditions improved. General price and wage pressures were minimal, and agricultural prices retreated further.

Consumer Spending
Overall consumer spending increased in July and August. New auto sales were strong in large part due to cash-for-clunkers with Illinois among the top five states to make use of the program. Greater showroom traffic also led to an increase in sales of used autos. Some contacts indicated that the program created demand that otherwise would not have existed, while others suggested that it had simply pulled forward demand. Several dealerships suspended their participation in the government program over concerns about the slow rate of reimbursement. Inventories of all qualifying vehicle segments were significantly reduced to low, but comfortable levels. Retail sales excluding autos decreased slightly from the previous reporting period. Consumers continued to spend on essentials like health and personal care items, but sales of big-ticket items such as electronics, appliances, and furniture remained weak. Retailers also reported planning to maintain low inventories as they expected spending to continue to be weak.

Business Spending
The decline in business spending slowed in July and August. Inventory reductions ebbed. Firms remained cost-conscious, limiting spending and hiring. Several contacts indicated that low levels of working financial capital along with tight credit markets would continue to constrain business investment. In addition, contacts in the manufacturing sector expressed reservations about how quickly they could increase production when conditions warranted given the degree to which they had cut back on workforces. Labor market conditions continued to be weak. Hiring was limited outside of healthcare and information technology. However, the rate of job loss slowed, and not as many contacts noted layoffs or reducing hours this reporting period. In addition, a large staffing firm indicated that billable hours had increased in recent weeks. In the auto industry, several contacts reported bringing back previously laid off workers as well as increasing hours or the number of shifts. However, some contacts questioned the sustainability of this ramp-up.

Construction and Real Estate
Overall, construction activity in the District remained weak in July and August. Residential construction increased from the previous reporting period, with builders indicating cancellations had declined and contract signings had increased. However, the level of activity remained low with housing inventories elevated (but coming down) and credit still tight for developers. Single-family home sales increased and prices stabilized. In contrast, significant reductions in condo prices were reported. The availability of financing continued to be a concern for potential condo buyers. Contacts also noted that many unsold condos were being converted to apartments, putting downward pressure on residential rents. Private nonresidential development and construction were weak. Contacts were concerned about sharp declines in commercial real estate prices, elevated vacancy rates, and the rising inventory of buildings for sale, all of which contributed to a decline in commercial rents. Commercial real estate developers also noted the limited availability of credit. Contacts indicated that the fiscal stimulus program was having a limited impact on public construction with the exception of road building and repair.

Manufacturing
The decline in manufacturing activity in the District flattened out in July and August. Overall activity remained low, but contacts noted an increase in orders. It was unclear, however, the degree to which orders were increasing due to a sustained increase in final demand or the need to replenish lean inventories. For instance, a chemical manufacturer reported that orders had been rising for several months and that this increase was more indicative of a broad-based recovery in demand. On the other hand, a contact in the steel industry said that increased activity stemmed mostly from lean service center inventories, with final demand expected to increase only gradually through the rest of 2009. More generally, other metals-related manufacturers indicated weak, but firming activity. Automakers reported plans to increase production and automotive suppliers saw this showing through in higher orders. Power generation, medical devices, and pharmaceuticals all remained bright spots for manufacturing. Furthermore, exports to Asia, Mexico, and Europe were reported to have increased. In contrast, heavy equipment manufacturers continued to struggle, as did manufacturers with ties to residential housing. Demand for heavy and medium duty trucks also remained low, with contacts noting that excess capacity combined with upcoming EPA regulations had resulted in greater demand for used equipment.

Banking and Finance
Credit conditions in the District improved from the previous reporting period. There was a general improvement in the cost and availability of credit for businesses and consumers. Demand for auto loans increased considerably with the rise in sales. Consumer loan quality improved further, with the exception of home equity loans. A contact noted, however, that consumer bankruptcies continued to increase. Banking contacts indicated that the number of creditworthy borrowers had increased, and in response they were making credit more available than in recent months. In addition, a contact noted that even though Treasury yields had risen, borrowing costs for a number of area corporations had declined as credit spreads had narrowed considerably. Contacts in banking also reported less deterioration in loan quality. Commercial real estate was an exception and remained a source of concern with many loans coming due for refinancing in 2010. A contact noted that his bank had been aggressively pursuing modifications of these loans to avoid potential problems in the future. In addition, credit conditions for agriculture deteriorated.

Prices and Costs
Price pressures were not significant on balance in July and August. Contacts reported increases in several metals prices including steel, copper, and nickel as well as higher rail freight shipping costs. In contrast, utility costs softened a bit, and the price of natural gas remained very low. A contact indicated that cooler weather in the Midwest, a surplus of stored gas, and a mild hurricane season all suggested that natural gas prices would remain low. Contacts also noted continued declines in food and paper prices, and retailers reported that wholesale prices were still low. Wage pressures were not significant, although downward pressure on non-wage pay and benefits was subsiding. Pass-through of wage and price pressures to downstream prices was minimal as contacts indicated pricing power remained limited.

Agriculture
The conditions of the District's corn and soybean crops were about the same as a year ago. Cool temperatures slowed maturation and both crops continued to trail the pace of normal development. However, in most of the District there is adequate moisture to produce strong yields. However, contacts were concerned about diseased soybeans cutting yields. Corn and soybean prices decreased further during the reporting period, although soybean prices recovered some in August. With the drawdown of stocks before the upcoming harvest, the premium on old over new crop forward contracts increased. Hog prices declined, heightening pressure to renegotiate long-term contracts. Dairy prices received support from the U.S. Department of Agriculture. A source reported that with prices remaining insufficient to cover costs for many producers the livestock industry was getting "killed." Margins moved up in the ethanol industry due to lower input costs. With agricultural income down a lot from last year, operating budgets were tighter.